61995023 Securities Contracts Regulation Act 1956

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SECURITIES CONTRACTS REGULATION) ACT, 1956


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Sachin Mundra 36

Sandip Saha 50

Prashant Sawant 51

Suraj Shetty 57Anupkumar Tripathi 59

GROUP V


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Objective

Stock exchanges in India are regulated and controlled by the SecuritiesContracts (Regulation) Act,1956 (ACT NO.42 OF 1956). The objectsclause describes the Act as

"An Act to prevent undesirable transactions in securities by regulating

the business of dealing therein, by providing for certain other mattersconnected therewith."


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Contents of the Act

Preliminary

Recognised, Supervision & control of stock exchanges

Regulation of contracts in securities

Listing Of Securities Of Public Companies

Penalties And Procedures

Miscellaneous


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Definition of stock exchange

Stock Exchange" means any body of individuals, whetherincorporated or not, constituted for the purpose ofassisting, regulating or controlling the business of buying,selling or dealing in securities."


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APPLICATION FOR RECOGNITION OF STOCKEXCHANGES (SEC-3)

Any stock exchange, which is desirous of beingrecognised for the purposes of this Act may makean application in the prescribed manner to theCentral Government.


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GRANT OF RECOGNITION TO STOCKEXCHANGES(SEC 4)

If the Central Government is satisfied, aftermaking such inquiry as may be necessary in thisbehalf and after obtaining such furtherinformation, if any, as it may require


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Case Study

Section 4 of Securities Contracts (Regulation) Act, 1956does not require publication of pre-recognition Rules andBye-laws of a Stock

Decided by:SUPREME COURT OF INDIA, In Thecase of: Mahesh Ratilal Shah v. Union of India,

Appeal No.:SPECIAL LEAVE PETITION (C) NO. 21686OF 2006,

Decided on:January 19, 2010


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Withdrawal of Recognition (Section 5)

If the Central Government is of the opinion that the recognition granted to astock exchange under the provisions of this Act should, in the interest of thetrade or in the public interest, be withdrawn, the Central Government mayserve on the governing body of the stock exchange a written notice that theCentral Government is considering the withdrawal of the recognition for the

reasons stated in the notice and after giving an opportunity to the governingbody to be heard in the matter, the Central Government may withdraw, bynotification in the Official Gazette, the recognition granted to the stockexchange


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Power of Central Government to Call for Periodical Returns orDirect Inquiries to be Made (Section 6)

Every recognised stock exchange shall furnish to the Securities andExchange Board of India prescribed periodical returns relating to itsaffairs. SEBI may also call for such other information or explanationrelating to the stock exchange as it may require. SEBI can appoint oneor more persons to make an inquiry in the prescribed manner inrelation to the affairs of any of the members of the stock exchange inrelation to the stock exchange and submit a report of the result of suchinquiry to the Securities and Exchange Board of India.


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Furnishing of Annual Reports (Sec 7)

All recognized stock exchanges to furnish an annual report to theCentral Government

Powers of the Stock Exchange to Make Rules

(Sec 7A)

The power to make rules is subject to the approval of the Rules somade by the Central Government and publication of the said rules inthe official Gazette.


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j) The terms, conditions and incidents of contracts, including the prescription ofmargin requirements, if any, and conditions relating thereto, and the forms ofcontracts in writing

k) The regulation of the entering into, making, performance, rescission andtermination, of contracts, including contracts between members or between amember and his constituent or between a member and a person who is not amember, and the consequences of default or insolvency on the part of a seller orbuyer or intermediary, the consequences of a breach or omission by a seller or buyer,

and the responsibility of members who are not parties to such contracts;l) The regulation of transacting business including the placing of limitations thereon;

m)The listing of securities on the stock exchange, the inclusion of any security for thepurpose of dealings and the suspension or withdrawal of any such securities, and thesuspension or prohibition of trading in any specified securities;

n) The method and procedure for the settlement of claims or disputes, includingsettlement by arbitration;

o) The levy and recovery of fees, fines and penalties;

p) The regulation of the course of business between parties to contracts in anycapacity;

q) The fixing of a scale of brokerage and other charges;

POWER OF RECOGNISED STOCK EXCHANGE TO MAKE BYE-LAWS (SECTION 9) CONTD..


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r) The emergencies in trade which may arise, whether as a result of pool orsyndicated operations or cornering or otherwise, and the exercise ofpowers in such emergencies including the power to fix maximum andminimum prices for securities;

s) The regulation of dealings by members for their own account;

t) The separation of the functions of jobbers and brokers;

u) The limitations on the volume of trade done by any individual member inexceptional circumstances;

v) The obligation of members to supply such information or explanation andto produce such documents relating to the business as the governing body

may require.

POWER OF RECOGNISED STOCK EXCHANGE TO MAKE BYE-LAWS (SECTION 9) CONTD..


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POWER OF SECURITIES AND EXCHANGE BOARD OF INDIA TOMAKE OR AMEND BYE-LAWS OF RECOGNISED STOCKEXCHANGES (SECTION 10)

SEBI may, either on a request in writing received by it in this behalf from the governing body ofa recognised stock exchange or on its own motion, if it is satisfied after consultation with thegoverning body of the stock exchange that it is necessary or expedient so to do and afterrecording its reasons for so doing, make bye-laws, for all or any of the matters specified insection 9 or amend any bye-laws made by such stock exchange under that section.

Power of Central Government to Supercede Governing Body of a

Recognised Stock Exchange (Section 11)The Act under Section vests the Central Government to supercede governing body of arecognised stock exchange. It provides that where the Central Government is of the opinion thatthe governing body of any recognised stock exchange should be superceded, then, notwithstanding anything contained in any other law for the time being in force, the CentralGovernment may serve on the governing body a written notice that the Central Government isconsidering the supercession of the governing body for the reasons specified in the notice andafter giving an opportunity to the governing body to be heard in the matter, it may, bynotification in the Official Gazette declare the governing body of such stock exchange to besuperceded, and may appoint any person or persons to exercise and perform all the powers andduties of the governing body, and, and where more persons than one are appointed, may appointone of such persons to be the chairman and another to be the vice- chairman thereof.


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POWER TO SUSPEND BUSINESS OF RECOGNISEDSTOCK EXCHANGES (SECTION 12)

Section 12 of the Act deals with the power of the Central Government bynotification in the Official Gazette, for reasons to be set out therein, direct arecognised stock exchange to suspend such of its business for such period notexceeding seven days and subject to such conditions as may be specified in thenotification, and if, in the opinion of the Central Government, the interest of the

trade or the public interest requires that the period should be extended may, bylike notification extend the said period from time to time. Such power of theCentral Government to be exercised if in the opinion of the CentralGovernment an emergency has arisen and for the purpose of meeting theemergency the Central Government considers it expedient to do so.


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CONTRACTS AND OPTIONS IN SECURITIES

Establishment of Additional Trading Floors (Section 13A)

A stock exchange may establish additional trading floor with the prior approval of theSEBI in accordance with the terms and conditions stipulated by the said Board. Such'additional trading floor' to be a trading ring or trading facility offered by a recognizedstock exchange outside its area of operation to enable the investors to buy and sellsecurities through such trading floor under the regulatory framework of the stock

exchange. Indian Stock exchanges thus operate under strict control and supervision of

SEBI/Government, which help to make the stock exchange a pivotal institution in thefinancial system and able to discharge its following functions.

It performs an 'act of magic' by translating short-term and medium-terminvestments into long term funds for companies.

It Ensures a Measure of Safety and Fair Dealing It Directs the Flow of capital in the Most Profitable Channels

It induces Companies to Raise their Standard of Performance.


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CONTRACTS IN NOTIFIED AREAS TO BE VOID INCERTAIN CIRCUMSTANCES (SEC 14)

(1) Any contract entered into in any State or area specified in the notification under section 13

which is in contravention of any of the bye- laws specified shall be void:

(i) as respects the rights of any member of the recognised stock exchange who has entered intosuch contract in contravention of any such bye-laws

(ii) as respects the rights of any other person who has knowingly participated in the transactionentailing such contravention.

(2) Nothing shall be construed to affect the right of any person other than a member of the

recognised stock exchange to enforce any such contract or to recover any sum in respect ofsuch contract if such person had no knowledge that the transaction was in contravention ofany of the bye-laws.


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MEMBERS MAY NOT ACT AS PRINCIPALS IN CERTAINCIRCUMSTANCES (SEC 15)

1. No member of a recognised stock exchange shall in respect of any securities enterinto any contract as a principal with any person other than a member of arecognised stock exchange, unless he has secured the consent or authority of such

person and discloses in the note, memorandum or agreement of sale or purchasethat he is acting as a principal:

1. If he has not taken written confirmation then he shall secure writtenconfirmation by such person of such consent or authority within three daysfrom the date of the contract:

2. No such written consent or authority of such person shall be necessary if themember discloses in the note, memorandum or agreement of sale or purchasein respect of such closing out that he is acting as a principal.

Power to prohibit contracts in certain cases (Sec 16)

1. If the Central Government is of opinion that it is necessary to prevent undesirablespeculation in specified securities in any State or area, it may, by notification in the Official

Gazette, declare that no person in the State or area specified in the notification shall, savewith the permission of the Central Government, enter into any contract for the sale orpurchase of any security specified in the notification except to the extent and in the mannerspecified.

2. All contracts in contravention of the provisions after the date of the notification issuedthereunder shall be illegal.


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LICENSING OF DEALERS IN SECURITIES IN CERTAIN CASES(SEC 17)

(1)No person shall carry on or purport to carry on the business of dealing in securities in anyState or area except under the authority of a licence granted by the SEBI in this behalf.

(2) No notification shall be issued with respect to any State or area unless the CentralGovernment is satisfied that it is desirable or expedient in the interest of the trade or in thepublic interest that such dealings should be regulated by a system of licensing.

(3) The restrictions imposed shall not apply to anything by or on behalf of a member of anyrecognised stock exchange.

Sec 18-Exclusion of spot delivery contracts from sections 13, 14, 15 and 17

18. (1) Nothing contained in sections 13, 14, 15 and 17 shall apply to spot delivery contracts.

(2) If the Central Government is of opinion that in the interest of the trade or in the publicinterest it is expedient to regulate and control the business of dealing in spot deliverycontracts then, by notification in the Official Gazette, declare that the Licensing shall alsoapply to such State or area in respect of spot delivery contracts.


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CONTD...

18A. Notwithstanding anything contained in any other law for the time being in force,contracts are

1. traded on a recognised stock exchange;

2. settled on the clearing house of the recognised stock

Stock exchanges other than recognised stock exchanges prohibited (Sec 19)

(1) Except with the permission of the Central Government, No person shall organise orassist in organising or be a member of any stock exchange (other than a recognised

stock exchange) for the purpose of assisting in, entering into or performing anycontracts in securities.

(2) This section shall come into force when the central government issues thenotification.


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LISTING OF SECURITIES

Section 21 - Conditions for Listing

Section 21 A Delisting of securities

Section 22 Right of appeal against refusal of stock exchanges to list securitiesof public companies

Section 22 A Right of appeal to Securities Appellate Tribunal against refusalof stock exchange to list securities of public companies


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Section 22 B Procedure and power of Securities Appellate Tribunal

Section 22 C Right to legal representation

Section 22 D Limitation

Section 22 E Civil court not to have jurisdiction

Section 22 F Appeal to Supreme Court

LISTING OF SECURITIES


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CASE STUDY - DELISTING OF NIRMA

Dec. 22, 2010 - Post Offer Public Announcement issued by acquirers toPublic Shareholders in accordance with provisions of SEBI (Delistingof Equity Shares) Regulations, 2009

PA to acquire 3.63 Crs O/s equity shares representing 22.83% ofCompanys Equity Capital

Acceptance of Bids pursuant to a book building process

Discovered Price and Success of offer @ Rs.260/-

Acceptance of final price and Delisting


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PENALTIES AND PROCEDURES (SEC 23 -26)

23. (1) Any person who-

(a) without reasonable excuse (the burden of proving which shall be onhim) fails to comply with any requisition made under sub- section(4) of section 6; or

(b) enters into any contract in contravention of any of the provisions

contained in section 13 or section 16; or

(c) contravenes the provisions contained in section 17 or section 19; or

(d) enters into any contract in derivative in contravention of section 18A or the rules made under section 30.

(e) owns or keeps a place other than that of a recognised stock exchange

which is used for the purpose of entering into or performing anycontracts in contravention of any of the provisions of this Act andknowingly permits such place to be used for such purposes; or


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(f) manages, controls, or assists in keeping any place other than that of arecognised stock exchange which is used for the purpose of enteringinto or performing any contracts in contravention of any of theprovisions of this Act or at which contracts are recorded or adjustedor rights or liabilities arising out of contracts are adjusted, regulated

or enforced in any manner whatsoever; or(g) not being a member of a recognised stock exchange or his agent

authorised as such under the rules or bye- laws of such stockexchange or not being a dealer in securities licensed under section 17

(h) not being a member of a recognised stock exchange or his agentauthorised as such under the rules or bye- laws of such stockexchange or not being a dealer in securities licensed under section17, canvasses, advertises or touts in any manner either for himself oron behalf of any other person for any business connected withcontracts in contravention of any of the provisions of this Act; or


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(1) joins, gathers or assists in gathering at any place other than the placeof business specified in the bye-laws of a recognised stock exchangeany person or persons for making bids or offers or for entering intoor performing any contracts in contravention of any of the provisionsof this Act; shall, on conviction, be punishable with imprisonment

for a term which may extend to one year, or with fine, or with both.

(2) Any person who enters into any contract in contravention of theprovisions contained in section 15 [or who fails to comply with theprovisions of section 21 or with the orders of]45 the CentralGovernment under section 22 or with the orders of the SecuritiesAppellate Tribunal shall,46 on conviction, be punishable with finewhich may extend to one thousand rupees.


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Offences by companies

24. (1) Where an offence has been committed by a company, every person who, at thetime when the offence was committed, was incharge of, and was responsible to, thecompany for the conduct of the business of the company, as well as the company,shall be deemed to be guilty of the offence, and shall be liable to be proceededagainst and punished accordingly:

Provided that nothing contained in this sub-section shall render any such personliable to any punishment provided in this Act, if he proves that the offence was

committed without his knowledge or that he exercised all due diligence to preventthe commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence underthis Act has been committed by a company and it is proved that the offence hasbeen committed with the consent or connivance of, or is attributable to any grossnegligence on the part of any director, manager, secretary or other officer of thecompany, such director, manager, secretary or other officer of the company, shallalso be deemed to be guilty of that offence and shall be liable to be proceededagainst and punished accordingly.


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Explanation:

For the purpose of this section,-

(a) "company" means any body corporate and includes a firm or other associationof individuals, and

(b) "director", in relation to -

(i) a firm, means a partner in the firm;

(ii) any association of persons or a body of individuals, means any membercontrolling the affairs thereof.

[(3) The provisions of this section shall be in addition to, and not in derogation of,the provisions of section 22A].

Certain offences to be cognizable

25. Notwithstanding anything contained in the [Code of Criminal Procedure, 1898

(5 of 1898)],49any offence punishable under sub-section (1) of section 23, shallbe deemed to be a cognizable offence within the meaning of that Code.


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Jurisdiction to try offences under this Act

26. No court inferior to that of a presidency magistrate or amagistrate of the first class shall take cognizance of or try anyoffence punishable under this Act.


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MISCELLANEOUS (SEC 27- 30)

Title to dividends

Sec 27 A : Right to receive income from collective investment scheme.

Sec 28: Act not to apply in certain cases

Sec 29 : Protection of action taken in good faith

Sec 29 A: Power to delegate

Sec 30 : Power to make rules


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THANK YOU

61995023 Securities Contracts Regulation Act 1956

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Transcript of 61995023 Securities Contracts Regulation Act 1956